Do One-Product Wonders Have a Chance?
Early-stage companies face imposing market and sales choices in the face of IDNs and purchasing alliances. To partner or not to partner? That is the Question. Itís not easy being an early-stage company these days. The marketplace of the Ď90s has become somewhat skeptical of new products. In years past, it seemed that providers were more willing to take their chances on new technologies than they are today. Newly formed IDNs are attacking supply costs with vigor. Group purchasing organizations, always hungry for cost-cutting deals, have become accustomed to dealing with market-share leaders instead of one-product wonders. Physicians still crave new technology, but theyíre often under the thumb of administrative fiats. So what is the new-device company supposed to do? The fundamental questions such a company must answer are these: Can it market its products under its own label, or must it partner with an industry giant and ride on the coattails of the giantís other product offerings? The answer to both appears to be a resounding "Yes." "Certainly itís more difficult for single-product companies," says Brian Nowak, vice president of purchasing, Rush System for Health, Chicago. Such companies are limited by their resources in terms of sales support and bundling opportunities. "But I donít think that prohibits single-product manufactures from being successful," he says. The Clinical Connection Finding a clinical sponsor remains the best option for early-stage companies, says Nowak, whose system comprises eight hospitals in the Chicago area. Clinicians who have successfully tried a technology in one of the IDNís facilities are the most effective "missionaries" to present it to others, Nowak says. Even better if a company can spark discussion about its products between CEOs and CFOs, he says. "It means far more to have a CFO or medical director telling their peers, ĎThanks to this product, we have been able to achieve improved outcomes and better costs,í than just about anything a salesman can do." New-technology companies need to carefully consider the potential market share advantage that their technology might offer providers, suggests Ken Beck, purchasing manager, Aurora Health Care (Milwaukee). Two years ago, when a United States Surgical (Norwalk, Connecticut) representative presented Beck with the companyís ABBI breast biopsy system, Beck took the product to the business development office of St. Lukeís Hospital, an Aurora member. "No one in our market had the system at the time," he says. Big Decisions Given its name recognition and market clout, a company such as United States Surgical might have an easier time than younger companies in introducing new technologies to the market. And thatís precisely why early-stage companies have to consider the partnering question carefully. The more unique a technology, the better the chance for the developer to bring it to market with its own name on it, said David Chonette of Brentwood Venture Capital (Irvine, California), at the recent Medical Device Executive Forum in Anaheim, California. The odds are even better for manufacturers if the number of product decision-makers for its technology is limited. See below. First-Hand Accounts Two early-stage companies wrestling with the marketing choices before them are Raymond Cohen, president and CEO of Cardiac Science Inc. (Irvine, California) and Douglas Brenner, president and CEO of Cogent Light Technologies (Santa Clarita, California). Cohen, whose company develops defibrillation products, finds strategic partnerships attractive for a number of reasons. First, early-stage companies often spend too much time developing a distribution network or internal sales force. Second, such companies can have a tough time raising capital without banking on the name of a larger, more established player. Third, the life span of new technologies is shrinking, making it more important to get them on the market as quickly as possible. Cohen says early-stage companies have to answer the following question: "What is our strength? Is it R&D? Manufacturing? Sales? We canít do everything well." Their answer will help them determine the best route to market. Unlike Cardiac Science, Cogent Light Technologies has developed a process instead of a product. The process, called microillumination, is said to deliver more light than other technologies in a much smaller space. As a result, manufacturers of endoscopes or surgical headlights can reduce the size of their products, according to Brenner. Because Cogentís product is a process, the company was forced to enter into partnerships with product manufacturers, even though such partnerships could devalue the company in the eyes of potential acquirers. Such a strategy has suited it well thus far, because Cogent didnít want to become a product- or procedure-specific company, Brenner said. In addition, it helped the company gain access to financing, distribution and targeted product development. Specialty Sales and Marketing Requirements Companies that elect to go it alone have several options: They can hire their own sales force, which gives the company maximum control of its sales efforts, but is very expensive. Another option is to contract with specialty distributors, according to Steve Picheny, president of Stepic Medical (Long Island City, New York) and chairman of the board of the Independent Medical Distributors Association (Mission, Kansas). Picheny said that these specialty sales and marketing organizations are the "outsource specialists" for hundreds of innovative medical products manufacturers. "While [manufacturers] focus on R&D and manufacturing, [IMDA] members become their virtual selling organizations," he said. Quoting one manufacturer (Ron Benincasa, formerly of Intelligent Medical) that used specialty sales and marketing organizations to bring tympanic thermometers to market, Picheny enumerated some of the benefits of doing so: The manufacturer gains the benefits of the distributorís long-term relationships with key decision-makers in hospitals. Local warehouse and support services. Repair and warranty service capabilities. Product-bundling potential - a significant plus for single-product manufacturers. A constant and controllable cost of sales. Continual feedback from end-users. The ability to test pricing and promotions in regional markets. "Specialty sales and marketing organizations know their markets and can parlay their relationships with decision-makers to position new technologies in front of them quickly," Picheny said. Table: To Partner or Not to Partner Not Partnering (Direct Approach) Partnering Example markets: ophthalmology, electrophysiology and cardiac surgery. Example markets: general surgeries, OB/GYN and general dentistry. Establishes developerís credibility and gives the developer control over how the product is marketed and sold. May be only choice for new companies, especially if number of sales per potential customer is limited and product is not much different from others already out there. Costs a lot of money and often cuts down on the number of potential customers the developer can actually visit. Immediately expands market coverage. Retains focus, control and communication loop of product. Relinquishes focus and control of product; loses communication loop with customers and prospects. The increasing number of IDNs and the growing clout of purchasing alliances make it extremely difficult for a one-product company to compete in todayís market. Partnering with well-connected or big-name company eases entry into IDN markets through purchasing contracts. The fact that the product isnít tied to any other manufacturer may make the company more attractive to potential acquirers. Ties to other products can be a negative if an acquisition is an exit of choice.